PRESIDENTIAL REALTY CORP/DE/ - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: September 30, 2014

Or

For the transition period from         to         

Commission File Number: 001-08594

PRESIDENTIAL REALTY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

1430 Broadway, Suite 503

New York, NY 10018

(Address of Principal Executive Office)

Registrant’s Telephone Number, Including Area Code:  (914) 948-1300

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 As of November 14, 2014, there were 442,533 shares of Class A common stock and 3,846,147 shares of Class B common stock outstanding.  

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES 

Index to Form 10-Q

For the Quarterly Period Ended

September 30, 2014

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization

Presidential Realty Corporation (“Presidential” or the “Company”), is operated as a self-administrated, self-managed Real Estate Investment Trust (“REIT”). The Company is engaged principally in the ownership of income producing real estate. Presidential operates in a single business segment, investments in real estate related assets.

Basis of Presentation and Going Concern Considerations

For the nine months ended September 30, 2014, the Company had a loss from operations. This, combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of our business plan to achieve profitability, and to increase working capital by raising capital through debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”). The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of the Company’s financial position and operating results.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The results for such interim periods are not necessarily indicative of the results to be expected for the year. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected. These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2013 filed on March 28, 2014.

Principles of Consolidation

The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, the consolidated financial statements include 100% of the account balances of PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey Partnership”) through January 1, 2014. PDL, Inc. (was a wholly owned subsidiary of Presidential and the general partner of the Hato Rey Partnership) and Presidential owned an aggregate 60% general and limited partnership interest in the Hato Rey Partnership. These partnerships are being reported as discontinued operations (see Note 4). All significant intercompany balances and transactions have been eliminated.

Rental Revenue Recognition

The Company acts as lessor under operating leases. Rental revenue is recorded on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. Certain leases require the tenants to reimburse a pro rata share of real estate taxes, utilities and maintenance costs. Recognition of rental revenue is generally discontinued when the rental is delinquent for ninety days or more, or earlier if management determines that collection is doubtful.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Doubtful Accounts

The Company assesses the collectability of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Rental revenue is recorded on the accrual method and rental revenue recognition is generally discontinued when the tenant in occupancy is delinquent for ninety days or more. Bad debt expense is charged for vacated tenant accounts and subsequent receipts collected for those receivables will reduce bad debt expense. At September 30, 2014 and December 31, 2013, allowance for doubtful accounts for continuing operations relating to tenant obligations was $8,969 and $5,485, respectively.

Net Income (Loss) Per Share

Basic net income (loss) per share data is computed by dividing net income (loss) by the weighted average number of shares of Class A and Class B common stock outstanding during each year. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of non-vested shares. Diluted earnings per share calculation exclude the effect of stock options and warrants when the options and warrant assumed proceeds exceed the average market price of the common shares during the period. For the three and nine months ended September 30, 2014, 2,440,000 of outstanding stock warrants were not included. Diluted loss per share for the three and nine months ended September 30, 2014 and 2013, exclude common stock equivalents, of outstanding options and warrants as their inclusion would be anti-dilutive.

Cash

Cash includes cash on hand, cash in banks and cash in money market funds.

Management Estimates

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates.

Discontinued Operations

The Company follows the guidance of the Presentation and Property, Plant, and Equipment Topics of the ASC, with respect to long-lived assets classified as held for sale. The ASC requires that the results of operations, including impairment, gains and losses related to the properties that have been sold or properties that are intended to be sold, be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold are to be separately classified on the balance sheet. Properties designated as held for sale are carried at the lower of cost or fair value less costs to sell and are not depreciated.

Accounting for Uncertainty in Income Taxes

The Company follows the guidance of the recognition of current and deferred income tax accounts, including accrued interest and penalties, in accordance with ASC 740-10-25. Under this guidance, if the Company’s tax positions in relation to certain transactions were examined and were not ultimately upheld, the Company would be required to pay an income tax assessment and related interest. Alternatively, the Company could elect to pay a deficiency dividend to its shareholders in order to continue to qualify as a REIT and the related interest assessment to the taxing authorities.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition or cash flows based on current information.

Real estate is comprised of the following:

Rental revenue from the Maple Tree property constituted all of the rental revenue for the Company during the three and nine months ended September 30, 2014 and 2013.

In March and June 2014 we received distributions from Broadway Partners Fund II in the total amount of $86,245. This amount is reported as investment income on the statement of operations. This investment was previously written off. The Company recognizes income received on the cash basis.

During the quarter ended March 31, 2012, the Company designated PDL, Inc. & Associates, Limited co-partnership, Presidential Matmor Corp. and PDL, Inc. as discontinued operations. All amounts have been adjusted retrospectively for the change through the date of foreclosure.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes for the property discontinued:

During the third quarter of 2014 we deconsolidated all subsidiaries related to the ownership entities of Hato Rey property and recorded a loss of $516,982.

On June 8, 2012, we closed on a mortgage and line of credit for a combined total of $1,000,000 with Country Bank for Savings on the Mapletree Industrial Center. The mortgage is for $500,000 at a 5% interest rate, for a term of 5 years. Thereafter the interest will adjust monthly equal to the bank’s Prime Rate, plus 1% with an interest rate floor of 5%, for a term of 15 years. We received $459,620 of net proceeds. The outstanding balance at September 30, 2014 and December 31, 2013 was $446,950 and $465,309, respectively. The line of credit is for $500,000, with an interest rate of 1% over the bank’s Prime Rate (3.25% at September 30, 2014). The balance outstanding at September 30, 2014 and December 31, 2013 was $500,000. The line of credit is due on demand. Both the mortgage and the line of credit are secured by the Mapletree Industrial Center, in Palmer, Massachusetts.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PDL, Inc. (a wholly owned subsidiary of Presidential) was the general partner of the Hato Rey Partnership. Presidential and PDL, Inc. had an aggregate 60% general and limited partner interest in the Hato Rey Partnership. The Company exercised effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business. Accordingly, the Company consolidated the Hato Rey Partnership in the accompanying consolidated financial statements. From March 2012 through September 23, 2013 (date of foreclosure), the Company had reported the partnership as a discontinued operation.

The Company advanced $2,670,000 to the partnership to be used for building improvements and for operations. The loan, which was advanced to the partnership, as needed, earned interest at the rate of 13% per annum, with interest and principal to be paid out of the positive cash flow from the property or upon a refinancing of the First Mortgage on the property. On November 12, 2013 we contributed the entire loan balance of $2,670,000 and accrued interest of $1,614,941 to the Hato Rey Partnership.

Presidential has elected to qualify as a Real Estate Investment Trust under the Internal Revenue Code. A REIT which distributes at least 90% of its real estate investment trust taxable income to its shareholders each year by the end of the following year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders.

ASC 740 prescribes a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken. If the Company’s tax position in relation to a transaction was not likely to be upheld, the Company would be required to record the accrual for the tax and interest thereon. As of September 30, 2014, the tax years that remain open to examination by the federal, state and local taxing authorities are the 2010 – 2013 tax years and the Company was not required to accrue any liability for those tax years.

For the nine months ended September 30, 2014, the Company had a tax loss of approximately $239,000 ($0.06 per share) which was all ordinary loss. For the nine months ended September 30, 2013, the Company had taxable income from the foreclosure of the Hato Rey property of approximately $3,800,000 or $1.03 per share, and a capital gain of approximately $280,000 or $0.08 per share. On a consolidated basis the Company had taxable income of $3,000,000 or $0.82 per share and a capital gain of approximately $280,000 or $0.08 per share.

During the nine months ended September 30, 2014, the Company sold environmental tax credits from the state of Massachusetts for approximately $260,000 less expenses of approximately $19,500, in connection with the Mapletree Industrial Center.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Transaction Warrant is a warrant to purchase shares of the Company’s Class B Common Stock to be issued to Mr. Jekogian upon the closing of each acquisition transaction by the Company of cash or property (including capital commitments for the purchase of assets). A copy of the form of Transaction Warrant is annexed as an Exhibit to the amendment to Mr. Jekogian’s employment agreement. Each Transaction Warrant, when issued, will entitle Mr. Jekogian to purchase the number of shares of Class B Common Stock determined by multiplying the total value of the transaction for which the Transaction Warrant is being issued times 4.75% and dividing the amount thereby obtained by the “Transaction Price”. The exercise price of the Transaction Warrant will be the Transaction Price. The Transaction Price is the price at which owners of assets or third party investors providing capital or capital commitments have the right to acquire or are issued shares of Class B Common Stock (a) in exchange for interests in real estate assets or (b) in exchange for interests or investments in operating partnerships or other vehicles in which the Company has an interest and which own or are acquiring real estate assets or (c) in exchange for providing capital and/or capital commitments. Each Transaction Warrant will become exercisable six months after issuance. The Transaction Warrant will not be exercisable for any shares that would be deemed “Excess Shares” as that term is defined in the Company’s certificate of incorporation. Mr. Jekogian agreed not to exercise or attempt to exercise any Transaction Warrant for a number of shares which, when taken together with his other ownership of the Company’s securities, would result in the issuance of any Excess Shares.

The Transaction Warrant contains a cashless exercise feature. The Transaction Warrant also contains registration rights which permit Mr. Jekogian to demand one resale registration statement on Form S-3 at any time six months following the completion of a registered offering by the Company and unlimited piggyback registration rights, subject to customary cutbacks.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As provided in the amendment to Mr. Jekogian’s employment agreement, on January 8, 2014 the Company issued to Mr. Jekogian a Warrant to purchase 1,700,000 shares of the Company’s Class B Common Stock in exchange for the complete cancellation of $425,000 of the deferred compensation accrued under Mr. Jekogian’s employment agreement. The Warrant becomes exercisable only upon the expiration of six (6) months from the date of the Company’s consummation of a Capital Event and will expire five and one half years following the date it first becomes exercisable. The Warrant will also terminate if Mr. Jekogian terminates his employment and/or resigns as a director of the Company without “Good Reason” or without the consent of the Company prior to the date the Warrant becomes exercisable. The Company’s certificate of incorporation contains limitations on the ownership of shares of the Company’s common stock. Those restrictions limit, among other things, any person from owning more than 9.2% of the Company’s outstanding common stock as more particularly set forth in the Company’s certificate of incorporation. The Warrant is not exercisable for any shares that would be deemed “Excess Shares” as that term is defined in the certificate of incorporation. Mr. Jekogian agreed not to exercise or attempt to exercise the Warrant for a number of shares which, when taken together with his other ownership of the Company’s securities, would result in the issuance of any Excess Shares. The Warrant contains a cashless exercise feature. The Warrant also contains registration rights which permit Mr. Jekogian to demand one resale registration statement on Form S-3 at any time six months following the completion of a registered offering by the Company and unlimited piggyback registration rights, subject to customary cutbacks.

Alexander Ludwig –On January 8, 2014, the Company and Mr. Alexander Ludwig, a Director, President, Chief Operating Officer and Principal Financial Officer of the Company entered into an amendment to Mr. Ludwig’s employment agreement dated November 8, 2011. The amendment provides for (i) the extension of the employment term from May 3, 2013 to December 31, 2015, (ii) continuation of Mr. Ludwig’s base salary through the balance of the term at the rate of $225,000 per annum, (iii) removal of the $200,000 cap on the amount of any annual bonus that might be awarded Mr. Ludwig, (iv) the issuance of a “Transaction Warrant” to Mr. Ludwig upon the occurrence of a Capital Event, and (v) an increase in severance benefits from three months to six months in the event of a termination of Mr. Ludwig’s employment following a change of control or a termination for “good reason” as defined in the employment agreement.

The Transaction Warrant is a warrant to purchase shares of the Company’s Class B Common Stock to be issued to Mr. Ludwig upon the closing of each acquisition transaction by the Company of cash or property (including capital commitments for the purchase of assets). A copy of the form of Transaction Warrant is annexed as an Exhibit to the amendment to Mr. Ludwig’s employment agreement. The Transaction Warrant, when issued, would entitle Mr. Ludwig to purchase the number of shares of Class B Common Stock determined by multiplying the total value of the transaction for which the Transaction Warrant is being issued times 4.75% and dividing the amount thereby obtained by the “Transaction Price”. The exercise price of the Transaction Warrant will be the Transaction Price. The

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

“Transaction Price is the price per share at which owners of assets or third party investors providing capital or capital commitments have the right to acquire or are issued shares of Class B Common Stock (a) in exchange for their interests in real estate assets or in exchange for their interests or investments in operating partnerships or other vehicles in which the Company has an interest and which vehicles own or are acquiring real estate assets or (b) in exchange for providing capital and/or capital commitments. Each Transaction Warrant will become exercisable six months after issuance. The Transaction Warrant will not be exercisable for any shares that would be deemed “Excess Shares” as that term is defined in the Company’s certificate of incorporation. Mr. Ludwig agreed not to exercise or attempt to exercise the Transaction Warrant for a number of shares which, when taken together with his other ownership of the Company’s securities, would result in the issuance of any Excess Shares. The Transaction Warrant contains a cashless exercise feature. The Transaction Warrant also contains registration rights which permit Mr. Ludwig to demand one resale registration statement on Form S-3 at any time six months following the completion of a registered offering by the Company and unlimited piggyback registration rights, subject to customary cutbacks.

Included in other liabilities is $593,750 owed to former officers of the Company in connection with their amended employment agreements. These amounts were payable November 8, 2014. Subsequent to September 30, 2014 the former officers of the Company agreed to extend the due date to November 8, 2016 for $10,000 each or $30,000. These payments will be applied to the amount owed, reducing the balance due to $563,750.

On November 8, 2011, the Company and Signature (an affiliated entity owned by Nickolas W. Jekogian CEO) entered into a Property Management Agreement pursuant to which the Company retained Signature as the exclusive managing and leasing agent for the Company’s Mapletree Industrial Center property in Palmer, Massachusetts (the “Mapletree Property”). Signature manages the Mapletree Property in accordance with specific management guidelines and leasing guidelines and meets specific reporting requirements and vendor insurance requirements. Signature receives compensation of 5% of monthly rental income actually received from tenants at the Mapletree Property. The Company reimburses Signature for all reasonable expenses incurred by Signature in performance of its duties under the Property Management Agreement that are either in accordance with the annual budget or which have been approved in writing by the Company. Such expense shall include, but not be limited to, Signature’s costs of the salaries, benefits and appropriate and prudent training for Signature’s employees who are engaged solely in management or operation of the Mapletree Property, but excluding certain expenses that will be borne by Signature, as specified in the Property Management Agreement. The property Management Agreement renewed for a one year term on November 8, 2014 and will be automatically renewable for one year terms until it is terminated by either party upon written notice. For the three months ended September 30, 2014 and 2013, the Company incurred management fees of approximately $9,800 and 9,200, respectively. For the nine months ended September 30, 2014 and 2013, the Company incurred management fees of approximately $28,400 and $27,800, respectively.

On November 8, 2011, the Company entered into an Asset Management Agreement with Signature pursuant to which the Company engaged Signature to oversee the Mapletree property and our Hato Rey center in Hato Rey, Puerto Rico. Signature’s duties include leasing, marketing and advertising, financing, construction and dispositions of the properties. Signature will receive a construction fee for any major renovations or capital projects, subject to the approval of our Board of Directors, an asset management fee of 1.5% of the monthly gross rental revenues collected for the properties, a finance fee of 1% on any debt placement, and a disposition fee of 1% on the sale of any assets, as specified in the Asset Management Agreement. The Asset Management Agreement renewed for a one year term on November 8, 2014 and will be automatically renewable for one year terms until it is terminated by either party upon written notice. On September 8, 2013 the Asset Management fee associated with the Hato Rey Center was terminated due to the foreclosure and loss of the property. No additional fees are due for the Hato Rey Center. The Company incurred asset management fees of approximately $2,900 and $12,600 for the three months ended September 30, 2014 and 2013, respectively. The Company incurred asset management fees of approximately $8,500 and $39,000 for the nine months ended September 30, 2014 and 2013, respectively.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company subleases their executive office space under a month to month lease with Signature for a monthly rental payment of $433 or $5,200 per year. Either party may terminate the sublease upon 30 days prior written notice. On July 1, 2013 the Company moved their executive offices and amended its lease agreement with Signature for a monthly rental payment of $1,100 or $13,200 per year. All other terms of the sublease remained the same. For the three months ended September 30, 2014 and 2013, the Company incurred approximately $3,300 and $3,300, respectively, in rent expense. For the nine months ended September 30, 2014 and 2013, the Company incurred approximately $9,900 and $4,600, respectively.

10.  Stock Compensation

During January 2014, the Company issued 615,000 shares of Class B common stock, valued at $123,000 for director’s fees and other professional fees in lieu of cash payments, which is included in stock base compensation expense.

On November 8, 2011, the Company issued 740,000 options at an exercise price of $1.25. A total of 148,000 shares vested six months after the grant date. The aggregate intrinsic value was $0.00. The remaining options vest upon the achievement of performance milestones. Options vesting on the achievement of performance milestones will not be recognized as compensation until such milestones are deemed probable of achievement. The Company has approximately $592,000 of unrecognized compensation expense respectively, related to unvested share-based compensation awards. For the three and nine months ended September 30, 2014 and 2013, compensation expense was $0. Approximately $592,000 will vest upon the achievement of performance milestones.

On January 8, 2014, the Company issued a warrant to purchase 1,700,000 shares at an exercise price of $0.10 per share of the Company’s Class B Common Stock in exchange for the complete cancellation of $425,000 of the deferred compensation accrued under Mr. Jekogian’s prior employment agreement. The Warrant becomes exercisable only upon the expiration of six (6) months from the date of the Company’s consummation of a Capital Event and will expire five and one half years following the date it first becomes exercisable. The Warrant will also terminate if Mr. Jekogian terminates his employment and/or resigns as a director of the Company without “Good Reason” or without the consent of the Company prior to the date the Warrant becomes exercisable.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  Estimated Fair Value of Financial Instruments

Estimated fair values of the Company’s financial instruments as of September 30, 2014 and 2013 were determined using available market information and various valuation estimation methodologies. Considerable judgment was required to interpret the effects on fair value of such items as future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Also, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values. However, we believe reported amounts approximate fair value.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains statements that do not relate to historical facts, but are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to future events or trends, our future prospects and proposed development or business strategies, among other things. These statements can generally (although not always) be identified by their use of terms and phrases such as anticipate, appear, believe, continue, could, estimate, expect, indicate, intend, may, plan, possible, predict, project, pursue, will, would and other similar terms and phrases, as well as the use of the future tense. Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and forward looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Examples of forward-looking statements in this report include, but are not limited to, the following categories of expectations about:

Overview

Presidential is a Delaware corporation organized in 1983 to succeed to the business of a company of the same name which was organized in 1961 to succeed to the business of a closely held real estate business founded in 1911. Since 1982, we have elected to be treated as a real estate investment trust (“REIT”) for Federal and State income tax purposes. We own, directly or indirectly, interests in real estate and interests in entities which own real estate.

We outsource the management of the Mapletree Industrial Center to Signature Community Management.

We obtain funds for working capital and investment from our available cash, operating activities and refinancing of mortgage loans on our real estate.

On June 8, 2012, we closed on a mortgage and line of credit for a combined total of $1,000,000 with Country Bank for Savings on the Mapletree Industrial Center. The mortgage is for $500,000 at a 5% interest rate, for a term of 5 years. Thereafter, the interest will adjust monthly equal to the bank’s Prime Rate, plus 1% with an interest rate floor of 5%, for a term of 15 years. We received $459,620 of net proceeds. The outstanding balance at September 30, 2014 and December 31, 2013 was $446,950 and $465,309, respectively. The line of credit is for $500,000, with an interest rate of 1% over the bank’s Prime Rate (3.25% at September 30, 2014). The balance outstanding at September 30, 2014 and December 31, 2013 was $500,000. The line of credit is due on demand. Both the mortgage and the line of credit are secured by the Mapletree Industrial Center, in Palmer, Massachusetts.

Critical Accounting Policies

For the nine months ended September 30, 2014, the Company had a loss from operations. This, combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon management’s successful execution of our business plan to achieve profitability, and to increase working capital by raising capital through debt and or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make estimates and assumptions that affect the financial statements and disclosures. These estimates require difficult, complex and subjective judgments. Management has discussed with the Audit Committee the implementation of the critical accounting policies described below and the estimates required with respect to such policies.

Real Estate

Real estate is carried at cost, net of accumulated depreciation and amortization. Additions and improvements are capitalized and repairs and maintenance are charged to rental property operating expenses as incurred. Depreciation is generally provided on the straight-line method over the estimated useful life of the asset. The useful life of each property, as well as the allocation of the costs associated with a property to its various components, requires estimates by management. If management incorrectly estimates the allocation of those costs or incorrectly estimates the useful lives of its real estate, depreciation expense may be miscalculated.

The Company reviews each of its properties for impairment if events or changes in circumstances warrant. If impairment were to occur, the property would be written down to its estimated fair value. The Company assesses the recoverability of its investment in real estate based on undiscounted cash flow estimates. The future estimated cash flows of a property are based on current rental revenues and operating expenses, as well as the current local economic climate affecting the property. Considerable judgment is required in making these estimates and changes in these estimates could cause the estimated cash flows to change and impairment could occur. As of September 30, 2014, the Company’s net real estate was carried at approximately $567,000.

Rental Revenue Recognition

The Company recognizes rental revenue on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. Certain leases require the tenants to reimburse a pro rata share of real estate taxes, utilities and maintenance costs.

Income Taxes

We operate in a manner intended to enable us to continue to qualify as a Real Estate Investment Trust under Sections 856 to 860 of the Code. Under those sections, a REIT which meets certain requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders, if at least 90% of its REIT taxable income (exclusive of capital gains) is so distributed. As a result of our ordinary tax loss for the nine months ended September 30, 2014, there is no requirement to make a distribution for the third quarter of 2014. In addition, no provision for income taxes was required at September 30, 2014.

Results of Operations

Results of operations for the three and nine months ended September 30, 2014 compared to the three and nine months ended September 30, 2013:

Continuing Operations:

Revenues increased by $3,739 and $14,219 for the three and nine months ended September 30, 2014, respectively, as compared to the three and nine months ended  September 30, 2013,  as a result of increased rental occupancy at the Mapletree Industrial Center.  Management has successfully increased occupancy to 94.5% as of October 31, 2014.

Loss from continuing operations for the three months ended September 30, 2014 was $730,326 as compared to a loss of $209,583 for the three months ended September 30, 2013.  The increase in loss was primarily due to a $516,982 write off from non-controlling interest related to the dissolution of the ownership entities of the Hato Rey property and an increase in operating expenses in the amount of approximately $8,000.  The increase in operating costs was primarily attributable to an increase in insurance costs related to the Mapletree Industrial Center.

Loss from continuing operations for the nine months ended September 30, 2014 was $924,832 as compared to a loss of $726,239 for the nine months ended September 30, 2013, an increase of $198,593.  The increase in the loss was primarily due to a $516,982 write off from non-controlling interest related to the dissolution of the ownership entities of the Hato Rey property. This was offset by income in the second quarter from the sale of environmental tax credits in connection with the environmental cleanup on the Mapletree Industrial Center in the amount of $259,851 and $86,245 of investment income from our investment in Broadway Partners Fund II recorded during the first and second quarters.  Operating costs at our Mapletree Industrial Center were consistent with the prior year even though we had a decrease in reimbursed expense of $30,000 for management salaries that was previously reimbursed from the Hato Rey Center property prior to its foreclosure in September 2013.  General and administrative expenses increased approximately $20,000 primarily due to the issuance of stock compensation for board of director’s fees and other professional fees instead of cash recorded during the first quarter of 2014.

Balance Sheet

September 30, 2014 compared to December 31, 2013

Net real estate decreased by $34,656 primarily as a result of depreciation expense recorded during the nine months ended September 30, 2014 on the MapleTree Industrial Center.

Net mortgage portfolio decreased by $335 as a result of mortgage amortization and payments received during the nine months ended September 30, 2014.

Assets related to discontinued operations decreased by $45,793 due to a decrease in prepaid expenses related to the Hato Rey Center foreclosure.

Prepaid expenses decreased by $43,015 primarily due to accretion of the directors and officers tail policy purchased in 2011.

Other assets decreased $78,426 primarily due to the receipt of $77,642 of accrued investment income received from Broadway Partners Fund II during 2014.

Accrued liabilities decreased by $285,957 primarily as a result of Nicholas W. Jekogian’s exchange of accrued officer salary of $425,000 for 1,700,000 warrants (see Note 11 to the consolidated financial statements), offset by his 2014 salary.

Liabilities related to discontinued operations decreased by $48,368 due to payments made related to the Hato Rey Center foreclosure.

Other liabilities remained consistent from period to period.

Liquidity and Capital Resources

We obtain funds for working capital and investment from our available cash.

For the nine months ended September 30, 2014, the Company had a loss from operations. This, combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of our business plan to achieve profitability, and to increase working capital, raising debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

At September 30, 2014, we had $454,331 in available cash, a decrease of $22,746 from $477,077 available at December 31, 2013. This decrease in cash and cash equivalents was due to cash used in operating activities of $1,936 and $2,451 used in investing activities and $18,359 of principal payments made on the Mapletree Industrial Center mortgage.

Operating Activities

Cash from operating activities includes interest on the Company’s mortgage portfolio and net cash received from rental property operations. For the nine months ended September 30, 2014, cash received from interest and amortization on the Company’s mortgage portfolio was $2,178. Net cash received from rental property operations was approximately $184,000. Net cash received from rental property operations is before additions and improvements and mortgage amortization. Cash received from investment activities was approximately $86,000 from Broadway Partners Fund II. Other income of approximately $260,000 was received in connection with the sale of environmental tax credits.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

While we are not required, as a smaller reporting company, to comply with this Item 3, we are providing the following general discussion of qualitative market risk.

Our financial instruments consist primarily of notes receivable and mortgage notes payable. Substantially all of these instruments bear interest at fixed rates, so our cash flows from them are not directly impacted by changes in market rates of interest. However, changes in market rates of interest impact the fair values of these fixed rate assets and liabilities. We generally hold our notes receivable until maturity or prepayment and repay our notes payable at maturity or upon sale of the related properties, and, accordingly, any fluctuations in values do not impact our earnings, balance sheet or cash flows. We also have investments in securities available for sale, which are reported at fair value. We evaluate these instruments for other-than-temporary declines in value, and, if such declines were other than temporary, would record a loss on the investments. We do not own any derivative financial instruments or engage in hedging activities.

Item 4. Controls and Procedures

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, herein referred to as the Exchange Act) as of the end of the period covered by this report. The purpose of disclosure controls is to ensure that information required to be disclosed in our reports filed with or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings and ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms.

The principal executive officer and principal financial officer also conducted an evaluation of internal control over financial reporting, herein referred to as internal control, to determine whether any changes in internal control occurred during the nine months ended September 30, 2014 that may have materially affected or which are reasonably likely to materially affect internal control. Based on that evaluation, there has been no change in the Company’s internal control during the nine months ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 14th day of November 2014.